November 27, 1999
From staff and wire reports
Harrisburg Patriot News
"If we achieve our goal, this $11.3 billion in Pennsylvania will
be closer to $5 billion . . . and this is good for public health.
Hopefully, this settlement will put itself out of business."
- Bill Godshall, SmokeFree Pennsylvania
Participating states are likely to receive less money from the
master tobacco settlement than initially thought because of
declines in cigarette shipments during the past two years.
Under the "volume adjustment" provision of the settlement, 46
participating states, including Pennsylvania, stand to receive
cuts of 10 percent or more from payout estimates. The
reductions stem from reduced tobacco shipments and sales
declines because of price increases and anti-tobacco
campaigns that started after cigarette makers settled lawsuits
with the states last year. The situation puts some state budget-crunchers in limbo as
they plan to spend money they do not yet have.
"Frankly, the prudent thing to do is not to spend specific
dollars until they see what they will be," said Laurie Loveland,
a lawyer who helped negotiate the tobacco settlement for the
North Dakota attorney general's office. "I think it's a mistake
for state legislatures to become addicted to tobacco money."
Tobacco companies agreed to pay about $206 billion during
25 years to settle lawsuits against them by Pennsylvania and
45 other states over the costs states incurred to threat sick
smokers.
Initial payments are expected to be released in the next few
weeks to most participating states and wouldn't be affected
by the coming adjustments.
But starting with next April's installment, Loveland said,
payments will be adjusted according to the number of
cigarettes shipped in the United States in 1998 and 1999.
Tobacco companies will report the shipment numbers to the
accounting firm Price-Waterhouse-Coopers shortly before
the April payments are to be made. If shipment numbers go
down, the accountants will adjust the payments accordingly,
Loveland said. For every full percentage number the shipments decrease,
the payments will be decreased 0.98 percent, she said.
The shipment figures are not released to the public, said
tobacco industry spokesman Scott Williams, and states
cannot yet get a firm grasp on what their payments will be. "The state
may be just making an estimate on what they
think the money's going to be. There's no hard figures on
that yet," Williams said. Shipments are tied to cigarette sales, and sales have been
down.
Price increases and marketing restrictions have meant an
8.6 percent reduction in the number of cigarettes sold this
year, the U.S. Department of Agriculture's Economic Research
Service has estimated. Last year, sales were down about 3
percent.
The loss will be countered somewhat by inflation: The
settlement agreement also factors in inflation of 3 percent
or the current inflation figure, whichever is higher.
Pennsylvania's settlement receipts are being held for the time
being because of a challenge to its participation in the
settlement pending before the state Supreme Court. But state officials
are developing plans to use the money to
improve Pennsylvanian's public health. Under the national agreement, Pennsylvania is to receive
$11.3 billion during the next 25 years.
A 10 percent cut could reduce Pennsylvania's projected
payment for the year 2000 from $368 million to a little more
than $330 million.
A spokesman for state Secretary of Administration Thomas
G. Paese said yesterday that state officials are aware of the
volume adjustments.
Scott Elliott said the Ridge administration's plan - now
expected to be released in conjunction with the governor's
2000-01 budget proposal - is being built on percentages,
rather than raw dollars, to handle reduced payouts.
"We recognize that these numbers aren't set in stone." Elliott
said.
One leading anti-tobacco advocate said the decreased
payout underscores the need for more of Pennsylvania's
settlement money to be spent on anti-smoking campaigns.
"We should do what we can to reduce smoking," said Bill
Godshall, executive director of the Pittsburgh-based
SmokeFree Pennsylvania," because our payments will be
determined primarily by what those national figures do."
Godshall also said the funding cuts should be hailed rather
than mourned because it means fewer people are smoking.
That, he added, is the surest way to cut smoking-related
medical costs and to generate long-term savings.
"Just focusing on the settlement payments is penny-wise
and pound foolish," Godshall said.
"If we achieve our goal, this $11.3 billion in Pennsylvania will
be closer to $5 billion . . . and this is good for public health.
Hopefully, this settlement will put itself out of business."
